Fund accounting is distinctive and is mostly used in non-profit organizations like churches. The accounting in these areas is done uniquely since they source funds from contributions. A good example of a non-profit organization is a church, and there is a need to handle their funds in the best way. In this way, they are able to keep a record of their expenditures hence liability. To ensure proper management of fund, accounting needs to be prioritized. Discussed in the article are why fund accounting is important in these types of organizations.
First, it keeps a track record. Accounting in these fields is also important because it helps ensure that the funds are handled in the best way. All the funds that they receive from various sources are managed in the best way. A record shows the cash flow, which makes the people in charge more responsible since they need to indicate how the money was spent. If no records are kept, then this means that they can use the money for whatever purposes, and that is why accounting is crucial. All the funds received and all the expenses are documented so as to ensure that there is accountability.
Secondly, it ensures accountability. Since the organizations have various sources to where they get their funds, they need to ensure that they are accountable. The funds need to be allocated in the right areas and ensure that every bit of spending is in the right way. Since there are financial statements produced, then they need to ensure that they are accurate. Therefore, as they disburse the money to various departments, they will ensure that they record it. The accountants in these areas have received the best training and therefore they have the knowledge required to manage these accounts. For any form of negligence on their side, they are legally responsible, and this guarantees that the funds are in the right hands.
Lastly, they have tax-exempt status. The funds that the non-profit organizations receive are free from tax from state to a local level. To ensure that they maintain this status, they need to ensure that they remain compliant. This is by ensuring that they are accountable for every spending and keeping a clear track record of their funds use. They are able to honor the wishes of the donors that give them these funds. By remaining compliant, this shows that they are responsible for all the cash they receive and use it for the right purposes. These are the various benefits of fund accounting. grgra